Documentation of all your tax claims is critical, but especially so for Schedule C filers.

The Internal Revenue Service relies on us to be truthful and report all the income we receive since, in many instances, the tax man doesn't get third-party verification. (That's changing, but that's a topic for a future post.)

Similarly, we have to make sure we can document all our business expense claims, including the miles we drive for work-related meetings, professional conferences and even to buy office supplies.

Schedule C overview: In case you're a new sole proprietor who will be attaching a Schedule C to your 1040 for the first time this filing season, here are some things to note.

In the first section, don't freak out about the instruction to enter you employer identification number, or EIN. You might not need one, but the IRS' Do You Need an EIN Web page will help you determine that and, if you do, it has links to where you can apply for one.

You will need, however, to enter your employment code in Box B on Schedule C. You'll find the list of Principal Business or Professional Activity Codes on the last few pages of the Schedule C instructions.

And if you and your spouse each materially participate in your business, take note of Line G. This is where you note that you materially participated in the business. When both husband and wife do so and file a joint return, they can opt to be taxed as a qualified joint venture instead of as a partnership. The Schedule C instructions have more on this election.

Now to the fun stuff. Filling out your Schedule C.

Part I, Reporting income: Good news for 2011 tax returns. You can ignore the first line in this section. It asks for merchant card and third party payments. This is an effort by the IRS to get a better handle on these types of payments, which it fears have been under reported.

But for the 2011 tax year, the IRS has deferred the reporting requirement so, as the form says, enter zero. But be ready for it next year.

The rest of the section is pretty straightforward. You add up all your gross earnings, even those for which you didn't make quite enough to be issued a 1099. You also must report income such as the value of bartered goods or services.

But if you sell products instead of services, you also subtract that amount here to come up with your gross income. And that means we have to skip ahead on the form for a minute.

In figuring the cost of your goods sold to enter in Part I, you have to fill out Part III. I know, it's a bit confusing but we are talking taxes here, so….

And you might not have to deal with Part III anyway. It applies only to a business that sells goods to customers. You can skip it if you make your money by providing services.

Part II, Counting up expenses: Now to the more fun stuff. Tallying all the business expenses that can reduce your gross income and thereby cut your tax bill.

Of course, the previously mentioned record keeping is crucial here. If you have the documentation, you can write off a wide range of business expenses. They include:

Advertising costs,

Commissions and fees,

Supplies,

Legal fees,

Repairs and maintenance,

Office expenses,

Home office costs (although this actually shows up under the expenses section; and don't forget your Form 8829),

Depreciation and Section 179 expenses,

Travel, meals and entertainment costs, and

Car and Truck expenses, the item that started this post.

More on your car costs in a minute, but first I want to note a few specific business expenses lines on Schedule C.

You'll also find in Part II a line for entering your pension and profit-sharing plans. This is for contributions you made for employees of your company. Your report and get to deduct contributions to your self-employed retirement account on Line 28 of your 1040.

And that line for wages, it's also for amounts paid to employees, such as bookkeepers, receptionists, salespeople, etc. Production worker salaries, however, are counted as part of the cost of goods sold in Part III.

Part IV, or back to your car: As for your business related automotive expenses, you can enter your actual automotive costs (gas, oil changes, repairs, insurance, etc.) or you can take the IRS standard mileage rate.

For 2011 taxes, there are two rates. It's 51 cents per business mile for the first half of 2011 and 55.5 cents per mile for business travel on and after July 1, 2011.

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Appreciate the mention, and that the tip helped!

Here's another tip: Try a mobile app to simplify recordkeeping of business expenses. I recommend either 'Expensify' or 'ConcurBreeze'. These allow you to capture digitized images of your receipts (while on the go) and easily integrate with QuickBooks. They also track distance via GPS - and calculate auto mileage painlessly and accurately. Plus, it's paperless!

Daily Tax Tip

Did you miss a daily tip posted above? No worries. They're collected in the 2015 Daily Tax Tips pages, one for each month of the filing season: January, February, March and, coming soon, April. And stay tuned for Weekly Tax Tips, coming after we survive the April 15 filing deadline!

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Counting Down to Tax Day

Tax filing day 2015 will be here before you know it, but our countdown clock to the 11:59 p.m. April 15 deadline will help make sure you don't miss it.

Time for Tax Tasks

March 1: It's March, the last full month of tax-filing season. Are you attacking your tax return like a lion? Or have the Internal Revenue Code's complexities turned you into a tax lamb?

Either way, you're at the right place. The following tax tips are for filers regardless of March animal avatars.

If so and you received $20 in tips in February, use Form 4070 to report them today to your employer. And don't forget to include the value of atypical tips.

March 16: Business filers generally beware the Ides of March because the 15th day of this month also is the corporate tax filing deadline, which can be dangerous to a company's bottom line. This year, however, the deadline day was on a Sunday, meaning that business taxpayers must file and pay any due tax by today.

March 17: It's St. Patrick's Day! But don't trust lucky charms to get you through a tax audit. Be prepared by, among other things, making sure you have sufficient documentation for all your tax claims and hiring a tax pro with audit defense experience to guide you through the process.

March 20: Spring has sprung! Not only is it time to finally welcome warmer weather, any spring cleaning also could pay off on your 2015 tax return. Get rid of all your unnecessary household items and clothes that no longer fit by donating them to your favorite nonprofit. You can claim the value as an itemized charitable deduction.

March 25: If you celebrated your 70½ birthday last year (and who doesn't have parties for half birthdays?) and didn't take money out of your tax-deferred retirement accounts by the end of 2014, you must make a specified withdrawal by April 1. No joke. These required minimum distributions, or RMDs, are Uncle Sam's way of finally getting his piece of your traditional IRA, workplace 401(k) or self-employed retirement plan pie.

March 31: You've put the finishing touches on your 1040 and are finally ready to file. Wait! Take one quick review of your forms to ensure you haven't overlooked any tax breaks or made any common tax mistakes. All's good? Then drop your return in the snail mail box or hit enter to e-file.

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AKA Disclaimer:

I am a professional journalist who has been covering tax issues since 1999. I am not a professional tax preparer. The content on Don't Mess With Taxes is my personal opinion based on my study and understanding of tax laws, policies and regulations. It’s provided for your private, noncommercial, educational and informational purposes only. It’s not a recommendation of any specific tax action(s) you should take. Similarly, mentions of products or services are not endorsements. In other words, my ramblings on the ol' blog are free advice and you know what they say about getting what you pay for. That's why when it comes to filing your taxes, I urge you to get additional, professional, paid-for guidance from an accountant, Enrolled Agent or other qualified tax professional who is familiar with your individual tax circumstances.

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